Revenues continue to roll; more excerpts from The Money Game
Steve Cook on Disciplined Investing

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Have You Seen This?

Economics

   This Week’s Data

    The October Philadelphia Fed index of general business conditions came in at 11.5 versus expectations of 12.0 and 14.1 recorded in September.  While mildly disappointing, it is the third positive reading in a row.
    http://bespokeinvest.typepad.com/bespoke/2009/10/philly-fed-positive-three-months-in-a-row.html

   Other
    
    China and the dollar (long):
    http://www.thebigmoney.com/articles/money-trail/2009/10/14/stop-worrying-about-china?page=0,0

    The dollar and money supply (medium):
    http://mjperry.blogspot.com/2009/10/based-on-m2-growth-should-be.html

    The EU and South Korea sign a free trade pact; meanwhile, the US does nothing (medium):
    http://www.nytimes.com/2009/10/16/business/global/16trade.html?_r=1

    The New York Fed’s Treasury spread model: zero chance of a double dip (short):
    http://mjperry.blogspot.com/2009/10/ny-fed-treasury-spread-model-zero.html

Politics

  Domestic

  International War Against Radical Islam

    Charles Krauthammer on the current state of US foreign policy (or lack thereof (medium) :
    http://www.washingtonpost.com/wp-dyn/content/article/2009/10/15/AR2009101502763.html


The Market
    
    Technical

    The Averages (DJIA 10062, S&P 1096) closed within the up trends off their March lows (9648-11550, 1044-1284).  Volume fell off.  The VIX traded down and closed below its most recent support level.  The re-sets this indicator into a down turn off its October 2008 high (that is a positive).

    A statistical look at the latest up trend (short):
    http://bespokeinvest.typepad.com/bespoke/2009/10/bull-market-checkup.html

   Fundamental
   
    Here is a negative comment on gold (short):
    http://seekingalpha.com/article/166888-sold-gold

       Headlines

    The revenue beat goes on:

    Yesterday’s scoreboard: Goldman Sachs reported better than expected profits and revenues; Baxter Labs posted higher earnings but flat revenue (though ex currency translations, sales were up 6%); Citicorp reported slightly better than forecast profits and revenues; Google beat on both EPS and revenue; IBM reported better than forecast profit and sales; Advanced Micro Devices had a smaller loss than anticipated and larger revenues than expected; Nokia had much better earnings and slightly better sales than expected; Harley Davidson had lousy earnings but slightly better revenue than estimates;  PPG had much better profits and slightly better sales than forecast; Southwest Airlines reported better than expected earnings but poor revenues and gave a dismal outlook.

    One service I saw has the count of companies reporting to date at 86% beating earnings estimates and 60% exceeding revenue forecasts.

    The economic data points (weekly jobless claims, the NY Fed business survey) both positive also helped fuel investor enthusiasm.

      Thoughts on Investing--More excerpts from The Money Game

    The chartist (technical analyst) has less material to report (than the fundamental analyst), and furthermore he does not have the Free Zone of the Long Term  to escape into.  His thesis is that past patterns tell future patterns; therefore, he must say whether  the market (a set of Averages) or a particular stock is going to go up or go down, and it is easy to check his predictions.  So he must say something like this:

We expect no furious advance unless the market is able to break through the overhanging resistance at the 920 level.  Recent weakness ins oils and strength in aerospace issues indicate leadership is rotating.  Support exists at the 885 level, and unless that is pierced on some volume, we would expect it to hold  near term.  A trading range is indicated.

In short, the market will not go up unless it goes up, nor will it go down unless it goes down, and it will stay the same unless it does either.

This may not be quite so useless as it seems.........a chart can show you what has been going on, and if this differs from what you think ought to be going on, maybe you ought  to think again, even if the future is not there in the tea leaves.  The assumption of the chart is that you ought to pay attention to it because the people who have already acted, and therefore created the chart, are smarter than you, or know something you don’t know.  You may reject the assumption, but it is a good check.

Can the footprints of price movements really predict the future?

If truly and universally they could, they soon would not.  When everyone know something, then no one knows anything; the market would soon become too efficient; that is, the gap between the present and future value would quickly be closed by the predictive device.

Does this mean that charts can be ignored?  Perhaps charts can be a useful tool even without inherent predictive qualities.  A chart can give you an instant portrait of the character of a stock, whether it follows a minuet, a waltz, a twist, of the latest rock gyration.  The chart can also sometimes tell you whether the character of the dancer seems to have changed .  There is even some mathematical support developing for the thesis that trends persist.

There is one thesis that runs through all of charting which we can isolate and examine.  Past patterns help determine future patterns; momentum can be shown on the charts.  All chartists, to extrapolate and visibly to determine motion, must draw some sort of line between prices at various times.  It may be a mean line, it may be a line connecting the tops and bottoms or both.  Then the thesis is that the stock  is more likely than not to continue along that line.  Never mind whether that ‘more likely’ is 51 percent or 99 percent; that is point at which the enemy attacks.  And the enemy is dead serious.
    









Posted 10-16-2009 8:21 AM by Steve Cook